Protect your estate with effective succession planning for your company.
What happens to your Companies if you die, get sick, are litigated against or become bankrupt?
There are almost 3 million companies in Australia and many are used by small business to trade and for others, companies act as a trustee for a discretionary family trust or a self-managed super fund. What happens when the director of the trading company or company trustee dies or becomes incapacitated?
- Will the business fail?
- Will it go into long slow hibernation until Supreme Court legal action is taken to install a director or new trustee?
- Will the company be taken advantage of by other existing directors?
- Will lawyers seeking to make claims against the estate lock up the company or put their favourite director in?
- For SMSFs will the ATO install their directors?
Any of the above reasons can spell disaster for a company, trust or SMSF. We have seen cases where a company was run into the ground in a short space of time because there was no director and the accountants and lawyers to the company did not realise that the director’s will is ineffective to appoint a continuing director. For this reason we advise all of our company clients to undertake succession planning and ensure that a ‘Successor Director’ is in place.
What is a Successor Director?
The company constitution and rules (not the Will or any enduring power of attorney) may provide for a person known as the Successor Director to take over from a sole director or a director on a Board when the current director is sick, dies or is subject to litigation including divorce or bankruptcy. The current director is automatically removed and the Successor Director appointed.
Case Study
John Smith runs his trading company as a sole director. He has ten staff and is very hands on but his staff do know what to do to keep the business running. He is also the director of the trustee company for his family trust and self-managed super fund. John dies in an accident and leaves behind a business, wife and two young children.
John’s family wealth is exposed as are all of his structures. Who will pay the bills? Will his family be able to access any money – even for the funeral? And this is only the tip of the iceberg – wait until the bank starts to threaten foreclosure on the family home from lack of funds.
But John’s accountant has put in place the Successor Director solution for all his companies and on John’s death, his brother Nigel is appointed as Successor Director the next day to keep an orderly transition of business, the family trust and the SMSF. The funeral is paid for and ongoing income is paid to the family.
What is involved?
To put in place the Successor Director solution we need to first upgrade your company constitutions to enable the Successor Director. Then we complete a binding resolution, signed by the current director or directors which will auto-install the Successor Director in the event of death, disability, bankruptcy, litigation or for any other reason. There is no need to inform ASIC at this time but if it is used then ASIC is an important cog in the wheel.
Why didn’t my lawyer or accountant put this is place in the first place?
Accountants aren’t lawyers and rely on preprepared company constitutions when they setup your company and these documents have not been produced considering these kinds of issues. Also, many accountants are not comfortable in helping clients undertake succession planning as they tend to focus mostly on tax compliance. Your accountant simply didn’t know you needed this!
Unfortunately, lawyers tend not to pre-emptively implement these kinds of solutions unless you specifically ask, worse still they tend to be a primary beneficiary through their fees when your family seeks their advice to sort out the mess described in this article! We interviewed many lawyers and it took us a long time to find lawyers who had developed these kinds of solutions and who were prepared to make them available to clients at affordable prices.
This is important to do now!
If you have a company and don’t have the Successor Director solution in place you are exposed. You can go to a legal firm and get an updated company constitution and binding resolutions for each company which will set you back $1,200 per company or as your accountant, we can provide the Successor Director solution, through our legal tie up with Abbott & Mourly lawyers for only $330 per company. Protect your family’s interests and wealth now. Simply email us and we will work on the project immediately and invoice you once the solution is in place or at the end of the month.
Interested in other succession, estate planning and asset protection strategies?
Want to learn more about our Estate Planning solutions? Check out our Estate Planning page HERE
Learn about the five reasons to update your family Discretionary Trust Deed HERE
Our Protector Solution – The ultimate family asset protection solution in life and after death HERE
See ASIC guidance on sole directors HERE